Honolulu mayor proposes Airbnb law overhaul

Honolulu Mayor Kirk Caldwell has proposed a new law that would restrict whole-home short-term rentals while legalizing opportunities for residents to share their homes with paying guests for short-term stays.

Under Caldwell’s bill, Oahu homeowners would be allowed to rent up to two rooms of their homes to up to four guests at a time in residential, apartment, business, and resort zones. These types of owner-occupied short-term rentals would be classified as bed-and-breakfasts.

Meanwhile, whole homes rented out for short terms, known as transient vacation units, would be banned in single-family residential areas. However, up to 4,000 transient vacation units would be allowed on Oahu by permit in apartment, business, resort, and mixed-use zones. These would be spread out around the island, with no more than 1 percent of residential housing per development plan area allowed for transient vacation units. Transient vacation units would also need to be approved by condo associations.

Operators of all short-term rentals, both bed-and-breakfasts and whole-home rentals, would be required to register with the city and include registration numbers in advertising. Hosts would also be required to pay higher property taxes, have insurance, and follow rules on safety, parking, quiet hours, and more. Transient vacation unit owners who do not live on Oahu must also have a local contact available.

The proposal includes registration fees of $1,200 for transient vacation units, with annual fees of $500, and an initial fee of $800 for bed-and-breakfasts, with annual fees of $200. Applicants would be allowed to hold just one conditional permit.

The law would also require short-term online rental platforms such as Airbnb, HomeAway, and VRBO to submit monthly reports to the city with information about hosts, properties, and transactions.

Operating a short-term rental illegally would bring steep penalties of $25,000 per day for the first violation and $50,000 for the second. Fines for third-time offenders could jump to $100,000 per day.

Currently, short-term rentals are generally only legal in areas zoned for resort use, mostly in Waikiki. The number of illegal short-term rentals dwarfs the number of legally permitted properties. Caldwell estimates that around 10,000 short-term rentals are active on Oahu, with only about 800 of them legal.

The plan could result in several thousand Oahu short-term rental homes being taken off the market. However, it could also add a few thousand new owner-occupied short-term rental properties because it would, for the first time, allow them in areas zoned for apartments.

Under Caldwell’s proposal, short-term rental operators would also be taxed by the city, most likely with different tax rates for transient vacation units vs. those for bed-and-breakfasts. According to the draft ordinance, “Based on the Department of Budget and Fiscal Services’ (BFS) current analysis, the estimated tax rate for B&Bs could be approximately $6.45 and the tax rate for TVUs could be $12.90. An ordinance associated with new, higher taxes for STRs will be introduced by BFS in fiscal year 2020.”

Currently, individual short-term rental operators in Hawaii are responsible for collecting lodging taxes from their guests and passing them on to the state. A new rate for Hawaii’s Transient Accommodation Tax, now 10.25 percent, went into effect on January 1. In Honolulu, that means a total lodging tax rate of 14.95 percent, including the state’s general excise tax. MyLodgeTax, a managed tax filing service, can help simplify and manage lodging tax compliance for hosts.

While Airbnb collects short-term rental taxes in many U.S. jurisdictions, its efforts to collect them in Hawaii have been met with resistance. Early this year, Hawaii Governor David Ige rejected the latest proposed Airbnb deal with the state that would allow the vacation rental platform to collect lodging taxes on behalf of its hosts. While the state Senate proposed a new measure to address the issue, it was not passed during the most recent legislative session.

Honolulu isn’t the only community in Hawaii addressing short-term rentals on the local level. In November, Maui voters will have the opportunity to approve a measure that would create a $20,000 penalty for operating illegal short-term rentals.

The Honolulu bill is under review by the city planning commission and then will go before the City Council. If approved by the council, the bill would go into effect on May 1, 2019.